In our years in the software business, we've noticed that the leading companies in any industry were always building business systems for themselves; that is, they would rarely use product software off-the-shelf. Why? Because the software available could not do what they needed it to do. By definition, productized software isn't innovative—at least to the innovators. The more you think about this, the more you understand why leading companies always have to customize off-the-shelf software.

Further, if you ask any supply chain professional why certain processes are the way they are, or why they can't make a seemingly obvious process improvement, the typical answer is that they are limited by their systems. Either their systems force them to process that way or their systems won't allow them to change operations when they want to.

SOA is here to attack these very problems. Service oriented architecture is a new way to construct business software applications that fundamentally enables custom innovations and flexibility to change, while freeing the business from being limited by its systems.

Solutions built with an SOA architecture break up the system's functionality into small, individual, functional components that are stored in a system library or service repository. The components are then assembled together using a set of business process workflow statements (think business process flowcharts), where each process block in the workflow is a functional component or service. (Exhibit 1 depicts this for an event-based warehouse process flow.) If customization is needed, a new custom component or service is developed and stored separately from the vendor's components but woven into the regular workflow. The sets of business process workflows can be saved. The new business systems process these workflows dynamically at runtime, virtually rendering the business application on the fly. If the business processes change, you modify the workflow description (flowchart), save it, reissue it to the server, and the application is modified.

Service oriented architecture already has proven itself in the warehouse management software systems (WMS) market. WMS implementations have historically been very customized and companies have found it difficult to upgrade to newer versions. In response, many of the leading WMS software vendors have completely rewritten their applications to leverage a full SOA architecture. Some of these systems have already been installed and implemented for six to eight years and have proven the new architecture's value to their customers. (One such example is discussed just below.) SOA drives value because it allows:

• Customization and innovation to coexist with upgradeable vendor-released software.
• Rapid reconfiguring of business processes removing the limits of systems.
• The creation of “composite” applications from different sources.
• Tighter integration with business partners regardless of where software resides.

Customization Coexists with Vendor-released Software

WMS implementations have traditionally required high levels of customization compared to other supply chain management (SCM) applications. Highly customized systems are rarely upgraded because the cost and time is prohibitive. SOA provides a way for customizations (which in many cases represents innovative processes) to co-exist non-intrusively with vendor-released software. The result: customers can regularly make upgrades without the high cost of retrofitting.

To illustrate, a sporting goods retailer we recently interviewed reported that it had customized a cross-dock flow in its distribution center from receiving process to preparing for store delivery. SOA allowed the company to add the custom process, which was not available in the WMS, to the system workflow. Even though the system was comprised of approximately 20 percent custom process, the retailer was regularly able to take and process upgrades from the vendor.

Rapid Re-configuration of Business Process

One reason why WMS are heavily customized relates to the numerous customer requirements that tend to fall on the fulfillment process. Special processing requests for certain products can be a drag on distribution center productivity if they cannot be automated and integrated into the regular fulfillment process. Integrating these customized, highly changing requirements is costly in traditional systems. The result is that the requirements often become “work-arounds” to the normal processes.

SOA can effectively address this issue. A third party logistics provider (3PL) told us that the flexibility to reconfigure application flow via the business process workflow capability of its SOA-centered WMS was instrumental in their winning and retaining new outsourcing business. The 3PL's speed in bringing up a new client (whose processes are always different from any other client) improved from 4-8 months to 1-2 months.

Composite Applications from Different Sources

Most of the large ERP providers have either converted or are in the process of converting their applications to a service-oriented architecture. Several independent vendors have created standalone SOA platforms for companies to integrate their various business applications together into “composite applications.” Composite applications combine functionality from different systems—systems that usually only cover a subset of what the business needs—in order to have a more seamless integrated process. The SOA architecture provides an evolutionary step forward from the typical hard-coded integrations of the past and offers more flexibility when connecting disparate systems.

Tighter Integration with Business Partners

The term, “web services” is often closely associated with SOA, but is not technically a requirement for a service oriented architecture. SOA components are connected via programming interfaces. When those interfaces are based on certain Internet technologies and standards, we call them web services. Web services enable components to be tied together regardless of whether the components run inside one computer, inside one company on multiple servers, or on servers spread across multiple business partners. This enables new levels of business partner integration.

To get the full value of SOA and make the most use of the flexible customization capabilities, veteran users emphasize the importance of learning the vendor's workflow configurator tools (called the “studio” by many of the vendors). They also note that SOA, in and of itself, doesn't have a solution for problems when information elements are represented differently across different systems. That is, SOA does not necessarily solve the data translation issues we face today when integrating systems.

As SOA-based business systems become more prominent, companies can customize them to their needs for those innovative things they do differently from their competitors. At the same time, they can leverage shared R&D services from vendor development efforts of best-practice off-the-shelf software. In-house development teams from multiple companies and vendor ecosystems (network of partners) will all be able to contribute to the advancement of systems, creating services and processes for industry to share. And importantly, software technology investments become more leveraged and useful as SOA adoption becomes prevalent.